Jefferson County, Alabama: The largest municipal bankruptcy filing in U.S. history

Jefferson County, Alabama, filed for Chapter 9 bankruptcy on Oct. 9, in the largest municipal bankruptcy filing in U.S. history. The county–which contains Birmingham, the state’s largest city–is but the latest in a series of municipal governments destroyed by derivatives. How much of this destruction are we going to tolerate before we reign in the criminality of the financial markets?

The facts of the case are pretty straightforward. JP Morgan Chase, as the lead bank in the deal, bribed a bunch of county officials and influence-peddlers to accept a horrible deal which screwed the county and its residents. The county was forced to jack up sewer rates some 400 percent, and slash other services, to try to pay the debt. Jefferson County defaulted on its payments in 2008, owing some $3 billion on a project that was initially slated to cost $250 million.

The SEC slapped the wrist of Morgan Chase and made it offer minor concessions, but the essential criminality of the deal was unchallenged. The bank bribed public officials to sell out the residents, and passed the cost of the bribes to those same residents as excess fees. And the so-called regulators let them get away with it, as they always do.

Two correctives are immediately required. The first is the reinstatement of Glass-Steagall, to prevent commercial banks and their affiliates from engaging such securities transactions. The second is the immediate closing of the derivatives markets, declaring all existing derivatives bets null and void by law, and prohibiting any new ones. The banks will not stopstealing on their own.

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